ConocoPhillips to acquire Marathon Oil in deal worth at least $17 billion

ConocoPhillips to acquire Marathon Oil in deal worth at least $17 billion

ConocoPhillips agreed to acquire Marathon Oil Corp. in an all-stock deal that valued the company at about $17 billion, spreading a significant buying spree among the largest players in the United States oil and gas industry.

The move expands ConocoPhillips' presence in domestic shale fields from Texas to North Dakota and gives the company reserves as far away as Equatorial Guinea. It adds to a wave of recent megadeals as producers seek new drilling sites with the bet that oil and gas demand will remain strong for years to come.

The acquisition deal represents a 14.7% premium to Marathon's last closing share price, the companies said in a statement Wednesday. The deal has an enterprise value of US$22.5 billion.

“We never know when these opportunities will be available, and this one certainly became available, or caught our attention, here a few weeks ago,” CEO Ryan Lance told analysts and investors on a conference call Wednesday. “We weren't necessarily looking for something, but an opportunity presented itself.”

ConocoPhillips joins the ranks of major drillers seeking production growth through recent acquisitions. In October, Exxon Mobil Corp. accelerated the pace of Permian Basin consolidation with a $62 billion deal for Pioneer Natural Resources Co. That was followed later that month by Chevron Corp.'s agreement to buy Hess Corp. for about of 53 billion dollars.

ConocoPhillips had already expanded in the Permian in recent years through the acquisition of Concho Resources Inc. for $13 billion and the US$9.5 billion purchase of Shell Plc's assets in the region.

The deal with ConocoPhillips stands out in some ways from other recent acquisitions that are reshaping the U.S. oilpatch. While the acquisitions by Exxon and others largely focused on lining up future drilling sites, ConocoPhillips' bid for Marathon has more to do with cutting costs in the aging Eagle Ford and Bakken shale basins, Citigroup analysts said in a investigation Note.

When combined with Marathon, ConocoPhillips sees approximately 2,000 locations in various U.S. regions where the company can return to older, lower-producing shale wells and return to fracking. That will allow it to take advantage of new hydraulic fracturing techniques to push water, sand and chemicals underground to release trapped hydrocarbons. It's what the oilpatch calls refrack, and it's an example of a new chapter for the U.S. oil industry, which Lance called “shale 2.0.”

“It's more about using technologies and efficiencies, data analysis and some of the potential of refrack,” said. Refracks can help expand some of its prime drilling locations in North Dakota's Bakken and South Texas' Eagle Ford shale plays, he said.

Shares of ConocoPhillips fell 4.1% as of 12:00 p.m. in New York, while Marathon gained 7.8%.

Although smaller than the massive settlements reached by Exxon and Chevron, The ConocoPhillips acquisition may still face antitrust scrutiny from the U.S. Federal Trade Commission, which has been taking a more active interest in corporate mergers under Chairman Lina Khan. The agency declined to challenge Exxon's deal, but only on the condition that Pioneer co-founder Scott Sheffield be removed from the big company's board of directors.

Devon Energy Corp. held talks with Marathon last year about a possible combinationpeople familiar with the matter told Bloomberg News at the time.

ConocoPhillips expects the acquisition to add resources totaling 2 billion barrels to its inventory.

The company anticipates the deal will close in the fourth quarter, pending regulatory approvals. After that point, ConocoPhillips says its share buybacks will exceed $20 billion over the next three years, with more than $7 billion in the first full year, assuming recent commodity prices.

The company also plans to increase its ordinary base dividend by 34% to 78 cents per share as of the fourth quarter.

Evercore is ConocoPhillips' financial advisor on the deal and Wachtell, Lipton, Rosen & Katz is the company's legal counsel. Morgan Stanley and Kirkland & Ellis advised Marathon.